Why green-minded firms should think like oil companies

Let me start by stating the obvious: The current trajectory of our society's consumption of natural resources is not sustainable. I know it, you know it, NGOs know it, and policy makers and business leaders increasingly know it.

Yet as the world prepares for the Rio+20 Conference on Sustainable Development in June, two questions loom large:

1. Why haven't we made substantive progress towards sustainable development over the last 20 years?

2. What do we need to do differently over the next 20 years to transition to a sustainable economy?

In December 2011, GlobeScan and SustainAbility, in collaboration with UNEP, queried about 650 sustainability experts and practitioners from around the world to get intelligence on the barriers that are impeding progress to sustainability.

The biggest barriers? Financial short-termism, inappropriate regulations and low awareness of the business imperative among business leaders.

The chart below, taken from the survey results, shows why financial short-termism is far and away the greatest barrier to business transition to sustainability.

Business Risks to Sustainability

Financial Short-Termism

Sustainability is without a doubt a long-term investment. While some initiatives and actions can have very short-term payback periods, creating lasting and meaningful change both within and beyond an individual organization requires patience, endurance and confidence in measures whose returns are not guaranteed.

In an environment in which investors want to see results quickly, and where investment managers are hired, compensated and fired based on their performance over 6-12 months, it is no wonder that financial short-termism is seen as the most significant barrier to sustainability.

What can businesses do in the face of this market force? Well, perhaps they can act more like oil companies -- yes, I did say oil companies. Here is what I mean.

Oil exploration and production is an activity with long payback periods and uncertain outcomes. Successful exploration companies drill many wells in diverse locations and geologies, and it usually takes years -- and sometimes a decade or more -- for production to come on line. Some wells are dry holes while others are gushers. Technology has dramatically improved "hit rates," but companies still sometimes come up dry.

The most successful companies are willing to make enormous investments, knowing that some wells won't pay out, but the majority will. What's important is not that every well is a gusher but rather the success of the overall portfolio, and the ability to learn from mistakes and apply those learnings to the next well.

Next page: Regulations and international standards